Twitter is the leading micro-blogging service – they have a strong brand, even if you use a competing service you’ll likely say you’re tweeting. Wired magazine declared blogging dead since we’ve all moved to Twitter. Have we, really? The NYT says 3 million users have tried it – compare that to the 133 million blogs Technorati keeps track of. But numbers aside, Twitter is clearly the leader in popularity. What it does not have is revenue – not a single cent. They live off VC funding, to the tune of $20M, and have recently hinted they would announce their business model early next year.

One concept is to charge companies who use Twitter to reach out to customers. I’ve already said I’d pay a buck or two, if that’s what it took to keep twitter alive – although it’s unlikely they would charge consumers. And of course there’s always the classic exit: get acquired.

So one could clearly characterize the Twitter approach to business the classic VC-backed, growth-oriented Web 2.0 formula: get big, then figure out how to make money.

Copycat Yammer is following the exact opposite model: they focus on revenues from Day One. Their twist on the Twitter formula: they focus on businesses, providing domain-based closed groups to tweet chat within. Many Twitter fans were sceptical when Yammer launched, saying Twitter could put them out of business in a second by launching private groups. I somewhat agreed:

But Twitter has not added groups, so Yammer is growing happily and virally (we’re using it here @ CloudAve), albeit not to Twitter’s level: they have about 60,000 users in 10,000 companies, of which 200 companies are already paying for 4,000 users. This isn’t hyper-growth, but stability.

Let’s be fair though: Yammer could not have grown virally, had Twitter not laid the foundation for them. Twitter had first been a weird concept, not even the founders could have predicted the wild popularity they gained. By the time Yammer appeared on the market, they had no explaining to do at all, the “aha moment” was there: “aha – this is Twitter for Business”.

The two companies represent two different approaches to business, both of which were valid when money was flowing free. The NYT quotes Paul Kedrosky:

“Now it doesn’t matter if you want scale first because you just can’t have it,” said Paul Kedrosky, a senior fellow at the Kauffman Foundation. “You have the luxury of being able to decide between small and focused on revenues or large when you have capital. When there isn’t money, there’s no choice.”

4 responses to “Twitter and Yammer – Growth vs. Revenue”

I think the article may have made it a bit binary. The best companies get going on a shoestring, and then scale. Twitter has raised a lot of $$$, but got going (at least the story goes) as a side project on very little capital.

It scaled (by users if not revenue) very quickly however. That’s the right time to invest capital if you want to build something big.

If you don’t invest one way or another as you scale, you miss your window one way or another.

Start-ups confuse the two however when they get a ton of funding early and scale-up their team and processes well ahead of scale in their userbase or customers.

Being a company forced to bootstrap early on, our company http://www.crosspartner.com learned much about how money is no “magic pill”. Hard work, critical thinking and a load of persistence is the only path to your destination